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  • 2012 Fall: Volume 10, Issue 2
  • Why Do Managers Use IRR in Investment Analysis?

    • Nalinaksha Bhattacharyya

    Use this link to view the PDF file: Why Do Managers Use IRR in Investment Analysis?

    Title:

    Why Do Managers Use IRR in Investment Analysis?

    Author(s):

    Nalinaksha Bhattacharyya

    Publication Date:

    2012

    Journal Title:

    The Journal of Finance Issues

    Volume Number:

    10

    Issue Number:

    2

    Abstract:

    Finance textbooks recommend the use of Net Present Value (NPV) as the evaluation tool for Capital Budgeting. Yet surveys of managers have consistently shown that managers prefer Internal rate of Return (IRR) to NPV. This article rigorously establishes the interpretation of IRR as the return earned on funds that remains internally invested in the project. Using this interpretation IRR can be viewed as a tool to evaluate the riskiness of the capital budgeting proposal.

    First Page:

    99

    Last Page:

    114

    Total Pages:

    15